Medearis over a game of poker to provide credit and banking services to the growing number of tech startups in and around the area.
The SVB failure is the second-largest bank failure in the United States since the 2008 Washington Mutual meltdown. With $209 billion in assets, the’startup bank’ was among the top 20 banks in the country in December 2022.
While some Indian banks have established startup-focused divisions, their technological infrastructure and attitude towards agile and innovative new-age businesses need to be reconsidered.
Federal regulators took over on Friday, October 10th, after its stock dropped by 60% the day before, sparking a panic-induced bank run.
According to data available, depositors attempted to withdraw $42 billion following the stock market crash. People were able to withdraw approximately $16 billion in a single day, leaving the bank with a negative $1 billion in cash when the Federal Deposit Insurance Corporation (FDIC) took control.
Silicon Valley Bridge Bank, N.A., a newly formed, full-service FDIC-operated ‘bridge bank,’ is now open for business. It is now operational, and both new and existing depositors have full access to their funds.
HSBC Bank has purchased SVB’s UK operations.
SVB Reactions, Reactions, and Industry Support
There is no reason to believe that SVB’s failure will have no impact on the Indian startup ecosystem. To begin, the majority of Indian SaaS companies have US accounts and most of them bank with SVB.
Over 60 Y Combinator-backed startups Indian startups have more than $250K in their SVB accounts, and nearly two dozen companies have more than $1 million in their SVB accounts.
“I am personally in touch with at least 15 Y Combinator founders who are directly affected because of this, and the threat is real. It is not the ‘1%’ as some armchair SJWs claim, but rather pre-seed, seed, and even pre-series A startups that employ over 500 people!” BharatPe’s VP of products, Anurag Rathore, wrote on LinkedIn.
Startups such as Truly Financial, Tazapay, and RazorpayX have stepped forward to assist their peers in opening virtual accounts in the United States for deposit settlements.
Many investors, including venture capitalists like Vinod Khosla, firms like Redpoint Ventures, and entrepreneurs like OpenAI CEO Sam Altman, have promised to support their portfolio companies with payroll and the ongoing cash crunch until the founders are able to access their funds.
According to news reports, SVB’s clients include 88% of the Forbes 2022 Next Billion Dollar Startups and nearly 50% of all US-backed tech and life science companies.
Silicon Valley Bank has emerged as a popular option among global startups looking to expand or relocate to the United States due to its extensive list of services and startup-friendly policies. This was especially helpful for Indian founders who needed to change their residency to Delaware in order to receive funding from Y Combinator.
“We also liked the community aspect, which was SVB’s strongest suit. It used to host VC games nights, networking dinners, and Holi and Diwali celebrations for Indian founders, assuring them that their bank is a trusted partner in their business,” said Ayush Jaiswal, cofounder of the edtech company Pesto.Tech.
SVB’s venture capital arm [SVB Capital] has invested in startups from all over the world, including those in India, for more than two decades. It has invested in several Indian startups, including BlueStone, Paytm, Naaptol, and Shaadi.com. It also invested as a limited partner in notable venture capital firms such as Sequoia Capital, Accel, Kleiner Perkins, Ribbit Capital, Spark Capital, and Greylock, among others.
However, the current status of many of these investments is unknown. BlueStone founder and CEO Gaurav Singh Kushwaha wrote on LinkedIn, “During our inception in 2011, SVB invested $1 Mn. They’ve since left our cap table by transferring their entire shareholding to another private entity. BlueStone currently has no exposure to SVB.”
Similarly, Paytm founder Vijay Shekhar Sharma stated that SVB left the company a long time ago.
According to Amit Gupta, director at Factoryl, a growth facilitation company, this [SVB crisis] is not as relevant to Indian tech startups as it is to Silicon Valley, where 60% of venture-funded companies banked with SVB and even VCs parked their money, essentially LP money.
Although there will be ripple effects in India, people will survive, and the jugaadu (resourceful) Indian founders will find a way out, as he stated on LinkedIn. It’s a short-term annoyance for many, but nothing major in the long run.
Indian startups chose SVB over domestic banks because the latter rarely portrayed themselves as partners to founders. Although some banks have established startup divisions, their technology infrastructure and attitude towards agile and innovative new-age businesses need to be reconsidered.
“This incident is a critical reminder for every entrepreneur to re-evaluate their treasury management practises. As a result, for better security, liquidity, and returns, we will advise our portfolio startups to diversify their banking receipts and split their treasury across multiple options. Furthermore, the rapid demise of a 40-year-old institution “highlights the fragility of even the most established institutions and emphasises that no one is bulletproof,” said Anirudh Damani, managing partner at Artha Ventures Fund.
Other experts and investors have noted that, with SVB temporarily out of the picture, India now has the opportunity to position GIFT IFSC as an alternative for offshoring or flipping companies.
GIFT IFSC, like SVB, provides several benefits for startups operating in international markets, including dollar accounts, no regulatory approval for foreign investments, and other tax exemptions. GIFT IFSC, according to investors, must become the beating heart for Indian startups creating global products.